8 Morrison Foerster 3 U.S. Review Intensifies Focus on High-Risk Sectors In the U.S., scrutiny of investments for national security issues in 2023 continued to increase, particularly for transactions by persons from China, Russia, and other countries the U.S. government perceives as strategic competitors and for transactions involving emerging technologies. Among other things, CFIUS is: ▪ Subjecting more transactions to investigation following initial review, ▪ Requiring full visibility into the acquiror’s ownership, including limited partners in fund structures, and ▪ Requiring substantially more mitigation agreements.8 One update that might have gone unnoticed: In mid-May, CFIUS stated that mandatory filings for certain staged transactions must be made up front, when the foreign investor acquires an equity interest, and not only when the CFIUS-relevant rights are triggered. CFIUS still appears, however, to distinguish purely contingent interests, such as SAFEs or convertible notes. Global Foreign Direct Investment Review Regimes Expand 2023 saw further proliferation of FDI regimes around the world, driven by a continued global trend towards protectionism (critical infrastructure, security of supply chains, and technology sovereignty) and accelerated by global events, such as the Ukraine war and growing economic and political tension with China. European Union: Several new FDI regimes emerged in the EU (e.g., in Belgium, the Netherlands, Luxembourg, and Sweden) or will be added in 2024 (e.g., in Ireland). All 27 EU Member States either have an FDI regime or are in the process of adopting one (there is no harmonized EU-wide FDI regime). Mandatory filing requirements apply across a broad range of sectors. The EU’s annual report for 2022 shows that the vast majority of filings received unconditional clearance (86%), but authorities sought mitigation measures in 9% and prohibited 1% of cases (with 4% withdrawn). In 2023, prohibition decisions were not focused exclusively on Chinese investors (e.g., France blocked an indirect U.S. investment; Denmark blocked a Japanese investment). The EU’s Foreign Subsidies Regulation (FSR) came into full effect in October 2023. The FSR is designed to prevent foreign subsidies from interfering with EU interests. It requires notification of foreign financial contributions with respect to certain larger M&A transactions and imposes other far-reaching obligations, and so requires thorough analysis of payments and other benefits received from foreign governments.9 National Security Processes Playing an Enhanced Role “2023 saw further proliferation of FDI regimes around the world, driven by a continued global trend towards protectionism (critical infrastructure, security of supply chains, and technology sovereignty) and accelerated by global events....”
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